National Association of Home Builders Discusses Economics and Housing Policy

Household Debt Outstanding Rises as Mortgage Debt Expands

Aggregate household debt outstanding totaled $12.116 trillion in the fourth quarter of 2015, 2.4%, $289 billion, greater than its level of one year ago.

According to the report released by the Federal Reserve Bank of New York, housing-related debt, mortgages and home equity lines of credit rose by a combined amount of 0.6%, $56 billion. The increase in housing-related debt outstanding reflected a 1.0%, $79 billion, increase in mortgage debt outstanding. Home equity lines of credit fell by 4.5%, $23 billion.

The Household Debt and Credit Report also includes information about the median credit score on mortgage originations. As illustrated by Figure 1 above, the median credit score on mortgage originations ticked up by 2 points between the fourth quarter of 2014 and the fourth quarter of 2015. After rising between 1999 and 2003, the median credit score on mortgage originations fell to 715 by 2004. After oscillating around that level between 2004 and 2006, the median credit score on mortgage originations began to rise in 2007. Between 2006 and 2010, the median credit score on mortgage originations rose by 72 points. Since then, and despite an uptick in 2015, the median credit score has fallen by 26 points to 753, still above the highest level recorded in the years prior to the Great Recession.

Using origination purchases by the Federal Home Loan Mortgage Corporation, “Freddie Mac”, Figure 2 decomposes mortgage originations into originations for home purchase and those for refinancing, showing the median credit score on each product. As illustrated by the chart, the median credit score on home purchases had been trending upward between 1999, the first year of data, and 2005. Over this 6-year period, the median credit score rose by 21 points to 742. Meanwhile, the median credit score on refinancing originations jumped 19 points between 2000 and 2001 and another 8 points between 2001 and 2002. However, by 2003, the median credit score on refinancing originations had dropped back to 711 and it stayed near there for the next four years.

The onset of the recession coincided with an increase in the median credit score on both home purchase originations and refinancing originations. However, the increase in the median credit score on refinancing mortgage originations was greater as the median credit score on refinancing mortgage originations moved closer to the credit score on home purchase mortgage originations. Between 2007 and 2011, the median credit score on refinancing mortgage originations rose by 63 points peaking at 778. Over the same 4 year period, the median credit score on home purchase originations rose by 30 points. The greater jump in the median credit score on refinancing mortgage originations helped shrink the difference between the median credit scores on both mortgage origination products that existed between 2003 and 2007.

In the 3 years since 2011, the median credit score on refinancing mortgage originations has declined faster than the pace of decline in the median credit score on home purchase mortgage originations, even though the median credit score on refinancing mortgage originations rose over 2014. As a result, the median credit score on home purchase mortgage originations again exceeds the median credit score on refinancing purchase originations. However, the median credit score on refinancing mortgage originations has not yet fallen to point where the gap between the median credit score on home purchase mortgage originations and the median credit score on refinancing mortgage originations is 20 or above.